Charge over bank account – a financial collateral arrangement?

F2G and GTP declared a trust over monies deposited in a bank account in GTP’s name. Clause 2 of the declaration provided: ‘[GTP] … agrees that, except in the circumstances referred to in [cl] 3, it will at the request and cost of [F2G] transfer the said balances without any withholding, deduction or set off, to the [F2G] …’. Clause 3 of the declaration provided that the GTP could withdraw from the account ‘such sums as [were] properly due’ if circumstances occurred. The effect was purportedly that GTP could have recourse to F2G’s property if F2G did not make agreed payments.

F2G entered liquidation and the liquidators ended the agreement and sought repayment of the balance in the account. GTP did not pay over the balance, but sought to set it off against what it alleged it was owed by F2G. The liquidators applied to court for payment of the balance in the account.

It was common ground that cl 3 of the trust declaration created a charge over account but the liquidators submitted that GTP’s rights constituted an unregistered floating charge and so was void as against them because it was not registered under s395 CA85.

(2) The requirement for ‘control’ in the art 2(2) of the EU Directive on financial collateral (implemented in England and Wales by the Financial Collateral Arrangements (No 2) Regulations 2003 (SI 2003/3226)) was a requirement that the collateral taker had the legal rights to deal with the collateral, as opposed to merely having administrative or practical control over it. Applying this in this case, the floating charge created by cl 3 of the declaration did not therefore fall within the definition of either a ‘security interest’ or a ‘security financial collateral arrangement’ within the meaning of the Regulations.

So the declaration of trust over the account was void against the liquidators as an unregistered floating charge.

It is a shame that the judgment will not be published given the court presumably considered of the meaning of ‘control’ which is not defined in the Regulations.

One Response to “Charge over bank account – a financial collateral arrangement?”

wakarsaid

Thanks Simon – it’s an interesting case given that a trust was created expressly, was seen to create a floating charge and presumably was not registered because it was seen as financial collateral within the regulations. Odd to have liquidators actually claiming that a charge did exist (although they knew that if they succeeded in this argument, the security would fail for lack of registration)!